PAR Wraps Up 2007 Session

June 29, 2007

Reform-oriented strategy was sorely lacking during the 2007 Regular Legislative Session. For a state still neck deep in its recovery from two catastrophic hurricanes two years prior with three extraordinary pots of cash to spend, a lame-duck governor and a term-limited Legislature, Louisiana demonstrated a remarkable capacity for sticking to its traditional script.

The unprecedented level of revenues available for this Legislature to spend ideally would have been pointed toward measurable outcomes designed to help propel the state toward a growth economy with healthier, smarter citizens. Yet, reforms in education, health care, workforce development and ethics and sunshine laws were sidelined in favor of short-term gains with vague, if existent, expectations for long-term improvement.

Overall, the session is a victory for the Blanco administration. The governor’s focus on education in the 2008 fiscal year budget was preserved in spite of vigorous debate and careful strategy by those who said they favored tax breaks over new spending. Beyond the rhetoric, however, it seems few were willing to shave much off the new spending proposed for education, health care, pay raises and pet projects. The tax break package that finally passed deviated substantially from the governor’s initial budget proposal, but only exceeded her original hard-line limit of $150 million by approximately $30 million for the 2008 budget year.

This year’s budget debate stands out for the scale of spending authorized by the major budget bills. The numbers were often called mind-boggling. While in past years, expenditures of $5 million to $10 million would have been hotly debated, this year $1 billion was shifted around for the Road Home gap almost as an afterthought, and $30 million adjustments were considered minor tinkering.

The budget bill for the 2008 fiscal year totals nearly $30 billion, of which roughly $1 billion is for new, recurring expenditures. HB 765 appropriates an additional $1.9 billion for the 2007 fiscal year, which includes the surplus revenues from 2006 and is mostly for non-recurring expenditures.

This atypical budget-making opportunity was rendered typical with the passage of hundreds of amendments in a matter of minutes with little or no debate, a frustrating level of behind-the-scenes negotiation and deal-making, essentially unfiltered passage of tax cut bills through the committees, a failure to address the state’s unfunded retirement debt and the passage of as many haphazard pay raises as could be squeezed in.

While old-fashioned budget-making priorities held their ground, sunshine in government took a step backward. Laws were created to shield certain records from public view, documents outlining expenditures on legislators’ pet projects were jealously guarded, and the Senate continued to refuse to offer the public free access to recordings of its meetings.

On the brighter side, it should be noted that there were some positive results yielded by this session. As there was no state poem, state song or state jelly that had to be anointed, the debates this year generally held more substance and less fluff than in the past.

PAR’s good, bad and ugly picks are below.

GOOD

Significant investments made in education.

In an effort to enhance Louisiana’s future, money was pumped into all levels of the educational spectrum—from universal pre-K and high school redesign, to funding for higher education and need-based financial aid. Improving the state’s educational outcomes continues to be a critical goal as evidence shows an increasing number of jobs will require some level of college and a more educated workforce.

It is unfortunate that much of the investment was made without being tied to strategic plans or performance measurements. While an across-the-board teacher pay raise did bring average teacher pay in the state up to the Southern average, it failed to tie pay to teacher performance or student achievement. The failure to require specific outcomes in education leaves the public wondering if there will be anything to show in the future for the considerable investment made today.

Insurance reforms offer promise of relief.

A frantic pre-session effort to find a solution to rising property insurance rates in the state yielded no clear path. But, the few reforms that were proposed to make Louisiana a more attractive market for insurers were enacted or preserved this session. The insurance rating commission was abolished with HB 960. Funding was provided to entice new insurers to the market with HB 678, and two separate plans to depopulate the state’s insurer of last resort were developed with SB 195 and SB 153. For good reason, shortsighted proposals to develop a state-funded catastrophe fund and to lower the rates for Citizens Insurance policyholders were derailed.

The establishment of the statewide building code has been considered another important reform to keep property insurance rates low. A move this session to weaken that law was thwarted. Small changes were made with HB 704. The bill loosened the amount of code enforcement on simple renovations to homes by only requiring compliance when renovations cover more than 50 percent of the home. Additionally, homeowners can have their property inspected by third-party contractors rather than being required to use local building code enforcement officers.

State funds were tapped to address the Road Home funding shortfall.

When news broke that the Road Home Program for rebuilding grants to homeowners was facing a $5 billion shortfall, federal officials quickly made it known that Louisiana would be expected to pick up a share of the expense. The administration initially identified more than $700 million to apply toward the program, then upped it to $1 billion upon federal-level demands. This funding has been set aside from a combination of state revenues and federal disaster aid and is a hopeful down payment on additional federal aid in the next supplemental war spending bill due out for debate by Congress in October.

Cockfighting is down for the count.

SB 221 outlaws gambling or wagering on a cockfight, while HB 108 outlaws organizing or conducting a cockfight. Louisiana is the last state in the nation where this brutal sport is still allowed. Although the outright ban in HB 108 will not become law until August 2008, the gambling prohibitions will become effective in August 2007. Legislators struck a compromise between the effective dates, reasoning that prohibiting wagering associated with the events would effectively end them. The level of compromise and fight it took to ban the activity, however, demonstrates how hard the state must continue to work on changing its image.

Indigent defense programs were coordinated.

Significant steps were taken toward indigent defense reform as HB 436 was passed, ushering in a restructuring of the state’s indigent defense system. The current system lacks reliable caseload documentation as well as effective regulation over local public defenders. The bill creates a single state board to oversee local indigent defense offices, which were controlled independently by 41 different boards. The Louisiana Public Defense Board will comprise all members of the current Louisiana Indigent Defense Assistance Board. The board will have regulatory control over all aspects of public defender services in the state and will operate under the authority of the governor.

BAD

Reform was shortchanged.

Perhaps due to election-year politics or simply an aversion to change, opportunities to improve government service delivery and administration in several areas were ignored. While some minor ethics reforms were passed, the ethics code still needs to be strengthened in several areas, including campaign finance laws, financial disclosure for elected officials and lobbyists and special interest exceptions. The capital outlay process also needs to be improved to make it less of a tool for deal-making and more of a transparent prioritization of investment according to objective criteria. Additionally, the large and popular investment in raising teacher pay could have been focused on improving teacher quality and pay equity across districts. In each of these areas an opportunity for reform was lost.

Health care changes masquerade as reform.

The budget largesse for the upcoming year and the foreseeable future has not yet translated into addressing real needs for the uninsured population. The Medicaid budget for the 2008 fiscal year reflects substantial growth and is based on $650 million in non-recurring revenues. The loss of this one-time funding could lead to catastrophic budget cuts in future years. In spite of the growth, the only expansion of insurance coverage is for additional children in the LaCHIP program at a cost of $31 million (HB 542).

SB 1 is the legislative vehicle for a diluted version of health care reform that promotes the concept of “medical homes” for primary care for the uninsured but relies heavily on charity hospitals to implement the model. SB 1 plans no coverage expansions for the uninsured, either through private insurance plans or Medicaid. Although SB 1 provides needed enhancements to improve efficiency and quality, it makes no fundamental system changes and, in fact, appears to bolster the status quo.

The Legislature also failed to establish a comprehensive, statewide health care reform planning effort, yet in a late budget adjustment managed to allocate funding to move forward on a plan to build a new charity hospital in New Orleans that grows with every iteration of its business plan. The state’s preference for a centralized, institutional approach to health care for the uninsured becomes more embedded with each of these changes being touted as reform.

Tax break bills impact future budgets.

The most contentious debates of the session focused on how much of the state’s new revenues to give back to taxpayers, which taxpayers should get the benefits and when they should go into effect. So many tax breaks were passed as separate bills and tucked into other bills with so little coordination that they are difficult to tally. It remains to be seen which of the $400 million to $500 million in tax cuts sent to the governor will be vetoed. She repeatedly has set a hard-line limit on cuts of $150 million. However, many of the cuts passed do not go into effect until 2008, which would make them the problem of the next governor and legislature.

Generally, tax breaks for businesses were sacrificed in order to grant breaks to individuals. The governor’s original budget proposal limited tax cuts to $133 million for a refundable child tax credit, a sales tax holiday, a decrease in the business utilities sales tax, a tax credit for child care providers and economic development incentives. Reversing Stelly Plan reforms was not a part of her proposal, but wound up being the focus of the tax break package finally passed by the Legislature.

The restoration of excess federal itemized deductions (HB 365) will reduce revenue by $157 million in the coming fiscal year and will be phased in over three years. It will benefit the 20 percent of taxpayers who itemize their returns and who are mostly the state’s wealthier citizens. This achieves a reversal of an important tax reform passed in 2002. To focus nearly the entire tax break package this year on a benefit for upper income individuals calls into question the sincerity of legislators’ “give it back to the people” rhetoric that was repeated throughout the session.

No permanent solution for road woes was identified.

The poor condition of the state’s transportation network is a well-known barrier to economic development, and no solution was established this session. The supplemental spending bill (HB 765) earmarked a $600 million, one-time expenditure for transportation funding, but the construction and repair backlog tops $14 billion.

A proposal repeatedly embedded in several bills throughout the session (originally HB 722) would have shifted more than $400 million of existing transportation-related taxes and fees from the general fund into the transportation trust fund. It was opposed by the administration and failed. Even that solution was only a partial one. A permanent, stable source of highway funding will require tough decisions. An increase in the gasoline tax and toll roads will have to be a part of the debate.

Popular pay raises award increases haphazardly.

Public employee pay raise policies should be guided by objective criteria that award increases for improved performance and are indexed for inflation, where possible. Political sway should not be the determinant, as it was in many of the pay raises granted in this year of ballooning revenues.

The most egregious example of an excessive pay raise granted as the result of influence rather than justification is the one that adjusts the pay categories for property tax assessors. This change will grant a raise in excess of $38,000 to some assessors.

The raises for teachers, school support workers, public safety employees, higher education faculty and state employees are much smaller, but also troubling because of inconsistent methods by which the amounts and means of distribution were determined. Across-the-board raises fail to reward performance and reinforce existing inequities. Cost-of-living raises should be established as indexed increases rather than erratic, single-shot boosts. And, state funding of local services, like supplemental pay for law enforcement and fire protection officers, should be minimized.

Another odd pay raise maneuver will de-link sheriffs’ pay from judges’ pay. The annual increases automatically granted to judges will no longer also be granted to sheriffs after 2010.

Two constitutional amendments regarding supplemental pay were passed by the Legislature and are now headed to voters. One would expand the program to include fire protection officers employed by a port authority, and the other would expand a prohibition against reducing state salary supplements once they are granted.

Pension system debt grows.

While not exactly a pay raise, another unjustifiable favor for a special interest group of public employees granted an expensive pension benefit increase for probation and parole officers. The governor’s veto of HB 845 is being requested by the state employees’ retirement system board of trustees.

Every benefit increase and pay raise granted serves to deepen the state’s pension system debt, also referred to as the unfunded accrued liability. In this year of overflowing coffers, some effort should have been made to make additional payments toward that debt, which is $12 billion and growing.

UGLY

Gamesmanship still alive and well at the Capitol, “did ya know”?

Business leaders, local chambers of commerce and the public pushed hard for extensive ethics reform this session in an effort to improve Louisiana’s image and bolster public confidence. A proposed package of ethics bills was introduced to move Louisiana forward from being one of the worst states in the country to possibly one of the best in terms of financial disclosure and ethics.

After numerous spirited debates, committee and floor amendments and a last-ditch effort to reach compromise in conference committee, a bill to require financial disclosure by elected officials (HB 730) effectively failed on the House floor in the final hours of session.

As disappointing as the failure of the bill itself, however, were the strategies legislators used to defeat it. Legislators who seemingly beat the “good government” drum loaded the original bill with so many onerous amendments that it was positioned for failure early in the game. What began as a straightforward measure to expand financial disclosure for legislators and candidates for the Legislature was expanded to include almost every elected official within the state.

As the bill neared final passage, the House stalled its progress by rejecting the compromise reached in conference committee. House members chastised the Senate for insisting that local officials be excluded from the new disclosure requirements. In the end, neither chamber had to cast a final vote on the bill, so everyone gets to claim that they voted for stronger ethics laws but the shenanigans of the other chamber prevented the bill from passing.

Shortsighted tactics preserve backwater image.

Financial disclosure wasn’t the only issue where legislators focused more on trying to win personal battles than on achieving meaningful reform. Flush with cash and at a time when the nation has been scrutinizing Louisiana’s rebuilding efforts, this was the Legislature’s chance to make a lasting difference. Instead, it was business as usual – with time wasted and sly attempts to circumvent the spirit of the ethics code and sunshine laws. Some of the ugly agendas in this session were:

Legislators’ attempts to exempt themselves from ethics provisions. SB 40, an attempt to exempt legislators from the Ethics Code requirement that they recuse themselves on a vote where potential conflicts may exist, was brought on solely by personal fallout between the Board of Ethics and a few legislators. Although the Senate reined in the effort, spending valuable time to settle personal scores is an action the Legislature must move past.

Legislators’ failure to substantially enhance public trust. Legislative members as a whole continue to shy away from tackling issues that compromise public trust. Seemingly plain solutions such as the “no cup of coffee rule,” which would prohibit legislators from accepting tickets to sporting events and other gifts, would go a long way toward restoring public trust in the system.
Past reforms were threatened.

Failed efforts to derail reforms underway could be viewed as positive outcomes for the session. But the mere attempt to dismantle both the Louisiana Recovery Authority (SB 267) and the Recovery School District (HB 822) was appalling. These two institutions are making steady progress on the monumental clean-up jobs they are charged with. To force an abrupt and early end to their work coordinating federal disaster aid and rescuing the failing New Orleans public schools would amount to giving up on hope for the state’s future.

Sunshine laws got a bit cloudier.

Pet projects still protected from public scrutiny.

In spite of the elimination of urban and rural slush funds, the budget continues to be loaded with pet projects that fund nonprofits and faith-based entities with little accountability. If the practice cannot be stopped, adding transparency to the appropriations should be required by law.

The House passed a rule in April to require House members to describe the structure and function of groups that receive state funds, but the House Clerk recently ruled that such information would not be available to the public because that information is the internal work product of the Appropriations Committee. HB 266 would have required by law, instead of by rule, that all legislators provide public disclosure about the groups they fund, however, the Senate never considered the bill.

The House countered by passing HR 69, which amends House rules once again. The new rule mandates that certain information be provided relative to any amendment to the appropriations bill that concerns funding an entity like those above. Though House rules have no effect on the Senate, the new procedure will require more documentation for pet projects and require it to be posted on the Internet. Interestingly, HR 69 only covers amendments to the appropriations bill; pet projects placed in the bill at the beginning of the process conceivably could escape disclosure requirements.

Confidentiality valued over transparency.

HB 964 allows certain nonprofit corporations working collaboratively with the state and receiving state funds to shield their internal work product from the public. As such, the Louisiana Health Care Quality Forum now can partner with the Department of Health and Hospitals to research the quality of the state’s health care system and recommend improvements, but will not be required to share with the public any details of its work or expenditures of state funds.

This measure likely will be followed by others proposed by similar groups that want the same protection from public records requirements, thereby further eroding Louisiana’s sunshine laws.

Senate debates remain in the dark.

SCR 18, which would have required all legislative floor proceedings and committee hearings to be broadcast via the Internet, available for free download and archived for three years, failed to pass. Such openness was implemented administratively for the House of Representatives in 1998. However, the Senate does not provide similar access in two of its committee rooms, nor does it maintain video copies of the meetings that are broadcast live. A measure to match the two houses also failed to pass the Senate in 2006. Once again, the push for openness was unsuccessful.

Public records disputes still costly and time-consuming.

HB 442 would have created a mediation process between agencies and citizens regarding public records disputes. Opponents of HB 442 objected to a perceived conflict in allowing the mediation to be handled by the Attorney General’s Office. The Legislature missed a prime opportunity to provide a less formal, administrative process that potentially could settle a great number of disputes.

Conclusion

Many of the tax breaks passed this session do not go into effect until 2008, so their revenue impact will not be felt until the 2009 budget year. This delayed impact, combined with the roughly $1 billion in additional, ongoing spending added to the 2008 budget may prove to make balancing the budget a formidable challenge next year.

In spite of huge revenue gains, nearly half of the Legislature facing term limits and a lame-duck governor, this session failed to generate the type of leave-a-legacy, visionary policies many had hoped for. Delayed reforms and delayed tax cuts are left to be addressed by the next round of office holders. This legislative session sets a busy stage for the upcoming election season.

On the bright side, in contrast to the 21 constitutional amendments voters faced in 2006, only four amendments will be on the ballot in October.